Dear Shareholders:
S.I.S. Mercator Fund, Inc. is now in its second year of
operation, and has demonstrated a record of low volatility
over this time, and also low turnover. While there is
no guarantee that the future will follow the
past, this is the same pattern shown by all accounts managed
by Strategic Investment Services, Inc., since
its inception in 1989.
Performance of the Equity Portfolio over the course of the first
half of the fiscal year closely followed the
Morgan Stanley Capital International World Index; sometimes
above and sometimes below. At the end of
April, the Global Equity Portfolio dropped back a little, having
risen 5.02% from the end of October 1996,
while the MSCI world index was up 7.56%.
The Global Income Portfolio did not do so well in absolute
terms over this period, as bond prices around
the world fell, but it did better in relative terms. The Global
Income Portfolio declined by 1.74% over the
first six months of the Fund's fiscal year, but this was an
improvement on the Salomon Brothers' World
Government Bond Index which fell 4.50%.
The last two months of the year saw mixed results in the equity
markets, with strong gains in January and a
more disappointing December. Most European countries and
Japan were still suffering from economic
stagnation, but there were signs of acceleration in the growth
of the US economy. Expectations for the
stock market were subdued at the start of the year, with most
forecasters setting limited objectives and
many looking for the US market to end the year below where it
started. The early surge in prices took most
indices past the best levels expected by the majority of pundits.
Bond markets continued to move higher in Europe well into the
first quarter, with the secondary market
s making up ground on Germany. The performance was not so
good in dollar terms, as the dollar
continued to rise. US bonds had trouble in this environment
and lost a little ground. Canadian bonds
continued to outperform.
By the time March arrived, it had become clear that the
Federal Reserve would make a preemptive strike
against inflation by raising interest rates. The economic
numbers coming out in the first quarter were all
strong, and generally exceeded expectations. Inflation,
however, remained low, and generally below
expectations. By this time Alan Greenspan had talked himself
into a corner, and some increase in the Fed
funds rate had become inevitable. Even so, the 25 basis point
increase was more a tap against inflation
then a strike.
The action, restrained as it was, still knocked US stocks and
bonds off course, and that in turn had
repercussions on the other world markets. As a result, most of
the gains that had been run up in the first
half of the quarter in the US and Europe were lost in the
second half. Japan, was relatively unaffected by
the reaction in the US, but then the markets had no gains to
lose anyway.
The European markets performed very well in domestic
currency terms, but gave up some of the gains to
the strengthening dollar. Even after this adjustment to dollar
terms, these markets have generally done
well, getting back on track at the start of the second quarter.
Japan and many of the Asian emerging
markets, on the other hand, performed very badly, particularly
in dollar terms, in the first quarter. Here
also, conditions began to improve in the second quarter.
Going forward, we expect the growth of the US economy to
slow down from the hectic pace of the first
quarter, and this should take pressure off the Fed to raise rates
further. Signs of this began to show up in
May, but with enough conflicting information to maintain a
high level of uncertainty. More importantly, it
will also lower expectations of higher rates.
Within this environment, European stock markets should also
move higher, as growth and earnings pick
up. Eventually, that will lead to higher interest rates and a
more cautious outlook for stocks. The
development of the business cycle in this way is not
controversial, the differences of opinion will be in the
timing involved. Near term, there is sufficient excess capacity
and high unemployment in most continental
European countries to prevent a pick up in inflation.
At this point in time, it looks as if the monetary union proposed
for 1999 will take place on time. However, there is still a long way to
go, and nearly all countries are having trouble meeting the strict fiscal
criteria - even Germany. There are likely to be times when uncertainty
increases and this will undoubtedly impact
bonds, equities and exchange rates within Europe.
Japanese stocks have underperformed significantly so far this
year, but now have the potential to move
higher. This market is relatively inexpensive, but still has to
overcome the huge negative sentiment that has
built up. If it is true that markets climb a wall of worry, this is
where the greatest potential lies.
Sincerely,
Richard T. Coghlan
Chairman & President
Global Equity Portfolio
Portfolio of Investments
April 30, 1997 (Unaudited) S.I.S. Mercator Fund, Inc.
COMMON STOCKS (88.8%)
Shares U.S. $ Value
NORTH AMERICA (42.4%)
United States (36.6%)
Adobe Systems Inc. 8,800 $344,300
Airtouch Communications Inc. (a) 10,800 275,400
AMR Corp. (a) 5,650 525,450
Ascend Communications (a) 7,200 329,400
C-Cube Microsystems (a) 11,000 270,875
Englehard Corp 14,900 312,900
EMC Corp. (a) 16,550 481,969
Gateway 2000 Inc. (a) 1,200 65,850
Genzyme Corp (a) 11,500 265,938
General Motors Corp. 6,400 370,400
Hercules Inc. 5,600 220,500
Home Depot Inc. 7,740 448,920
International Business Machines Corp.3,850 617,925
Intel Corp. 5,200 796,250
ITT Corp. (a) 6,500 385,125
Johnson Controls Inc. 7,000 268,625
Motorola Inc. 5,200 297,050
Micron Technology Inc. 10,000 352,500
Newmont Mining Corp. 1,622 56,162
Oakley Inc. (a) 19,000 194,750
Pharmacia & Upjohn Inc. 8,000 239,000
Quaker Oats Co. 9,700 388,000
Read-Rite Corp. (a) 14,600 377,775
Sybase Inc. 17,000 250,750
Tandem Computer Inc. (a) 24,800 319,300
Temple-Inland Inc. 4,600 255,300
United Healthcare Corp. 9,400 457,075
US West Media Group (a) 18,000 310,500
Viacom Inc. - Class B (a) 8,000 214,000
9,691,989
Global Equity Portfolio
Portfolio of Investments - continued
April 30, 1997 (Unaudited) S.I.S. Mercator Fund, Inc.
Shares U.S. $ Value
Canada (5.8%)
Barrick Gold Corp. 25,000 $559,375
BCE Inc. 10,900 509,575
Canadian Pacific Ltd. 18,700 458,150
1,527,100
EUROPE (23.8%)
Switzerland (3.5%)
Baer Holdings AG 420 525,712
Magazine Globus 425 217,690
Grands Magazines Jemoli-Bearer 320 184,966
928,368
Germany (7.1%)
Deutsche Bank AG 5,000 264,009
Deutsche Telecom 16,500 354,750
Lufthansa AG 21,500 299,957
Metro Holdings AG 3,600 349,393
Siemens 5,700 308,873
Volkswagen AG 940 98,943
1,875,925
Finland (2.3%)
Nokia Corp. - Sponsored ADR-A 9,600 620,400
France (6.4%)
Club Mediterranee 3,810 295,237
CIE Generale Des Eaux 977 136,174
Lagardere Group 13,746 425,600
Rhone Poulenc 15,301 514,930
Union des Assurances de Paris 13,413 332,048
1,703,989
Italy (2.6%)
Fiat Spa 90,000 297,721
Credito Italiano Spa 270,000 378,884
676,605
Global Equity Portfolio
Portfolio of Investments - continued
April 30, 1997 (Unaudited) S.I.S. Mercator Fund, Inc.
Shares U.S. $ Value
United Kingdom (1.9%)
Harrisons & Crosfield PLC 110,000 $218,901
Williams Holdings PLC 50,000 270,073
488,974
ASIA (22.6%)
Japan (20.1%)
Bank of Tokyo-Mitsubishi Ltd. 14,000 221,435
Fanuc 7,500 255,548
Honda Motor Corp. 12,000 372,049
Industrial Bank of Japan 13,000 138,102
Japan Asia Investment Co. (a) 26,000 164,904
Kajima Corp. 18,000 81,869
Kyocera 10,000 598,048
Matsushita Electronic Industrial Co. 30,000 479,226
Mitsubishi Heavy Industries 58,000 382,468
Mitsubishi Motors Corp. 118,000 817,123
Nippon Steel 96,000 273,466
Nomura Securities Co. Ltd. 25,000 279,351
Sakura Bank 30,000 158,404
Nintendo Corp. 5,000 299,402
Sony Corp. 4,800 349,009
Sumitomo Bank 16,000 182,562
Toshiba 50,000 280,139
5,333,105
Australia (2.5%)
CSR Ltd. 84,600 314,586
Pacific Dunlop Ltd. 126,500 342,912
657,498
TOTAL COMMON STOCK (Cost: $19,429,079) 23,503,953
Global Equity Portfolio
Portfolio of Investments - continued
April 30, 1997 (Unaudited) S.I.S. Mercator Fund, Inc.
FIXED INCOME SECURITIES (5.6%)
Principal Amt. (b)U.S. $ Value
United States (1.2%)
Argentina Gov. Bond 9.25% due 02/23/01 300,000 $310,500
Canada (2.7%)
British Columbia Prov. 7.875% due 11/30/23 450,000 331,181
Canada Gov. Bond 8% due 06/01/23 500,000 393,109
724,290
South Africa (1.7%)
Toyota Corp. Bond 15.75% due 02/25/98 2,000,000 450,809
TOTAL DEBT SECURITIES (Cost: $1,403,923) 1,485,599
SHORT-TERM INVESTMENTS (4.4%)
U.S. Treasury Bills 4.74% due 05/08/97 1,100,000 1,099,072
Highmark Money Market Fund 73,244 73,244
TOTAL SHORT-TERM INVESTMENT (Cost $1,172,316)
1,172,316
TOTAL INVESTMENT IN SECURITIES (Cost: $22,005,318)
(Notes 2A and 3) (98.8%) 26,161,868
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES-
NET (1.2%) 311,833
TOTAL NET ASSETS (100.0%) $26,473,701
(a) non-income producing security
(b) in local currency
Global Income Portfolio
Portfolio of Investments
April 30, 1997 (Unaudited) S.I.S. Mercator Fund, Inc.
FIXED INCOME SECURITIES (90.9%)
Principal U.S.$ Value Amt. (a)
NORTH AMERICA (68.4%)
United States (57.0%)
PDV America Inc. 7.25% due 08/01/98 100,000 $100,108
US Treasury Note 8.00% due 08/15/99 1,800,000 1,863,281
US Treasury Note 7.75% due 02/15/2001 400,000 416,625
US Treasury Note 8.0% due 05/15/2001 550,000 578,703
US Treasury Bond 5.625% due 02/15/2006 500,000 463,437
US Treasury Bond 8.0% due 11/15/2021 500,000 554,766
US Treasury Bond 7.5% due 11/15/2024 300,000 317,109
US Treasury Bond 7.625% due 02/15/2025 300,000 321,938
US Treasury Bond 6.75% due 08/15/2026 500,000 484,141
Republic of Argentina Bond 9.25% due 02/23/2001 600,000 621,001
Republic of Italy Bond 6.875% due 09/27/2023 500,000 457,817
YPF Corp. Bond 8.000% due 02/15/2004 350,000 345,625
6,524,551
Canada (11.4%)
Ontario Prov. 7.75% due 12/08/2003 625,000 475,053
Canadian Gov. Bond 8.0% due 06/01/2023 500,000 393,109
British Colombia Prov. 7.875% due 11/30/2023 590,000 434,214
1,302,376
EUROPE (16.4%)
European CC (7.6%)
United Kingdom Bond 9.125% due 02/12/2001 400,000 514,590
Council of Europe Bond 6.75% due 05/11/2004 300,000 355,771
870,361
France (8.8%)
French Gov. Bond 8.125% due 05/25/99 3,000,000 558,193
Denmark Kingdom Notes 5.5% due 10/26/99 2,500,000 443,517
1,001,710
Global Income Portfolio
Portfolio of Investments - continued
April 30, 1997 (Unaudited) S.I.S. Mercator Fund, Inc.
Shares/ U.S.$ Value
Principal Amt.
OTHER COUNTRIES (6.1%)
Australia (2.2%)
First Australia Prime Income Fund 28,000 $253,750
South Africa (3.9%)
Toyota Corp. Note 15.75% due 02/25/98 2,000,000 450,809
TOTAL DEBT SECURITIES (Cost: $9,984,078) 10,403,557
COMMON STOCKS (3.4%)
BCE Inc. 5,000 233,750
Southern Co. 7,500 152,812
TOTAL COMMON STOCK (Cost: $338,525) 386,562
SHORT-TERM INVESTMENTS (3.5%)
U.S. Treasury Bills 4.74% due 05/08/97 300,000 299,747
Highmark Money Market Fund.. 96,402 96,402
TOTAL SHORT-TERM INVESTMENTS (Cost: $396,149) 396,149
TOTAL INVESTMENT IN SECURITIES (Cost: $10,718,752)
(Notes 2A and 3) (97.8%) 11,186,268
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES-
NET (2.2%) 252,388
TOTAL NET ASSETS (100.0%) $11,438,656
(a) in local currency
Statement of Assets and Liabilities
April 30, 1997 (Unaudited)
S.I.S. Mercator Fund, Inc.
Global Equity Global Income
Portfolio Portfolio
ASSETS
Investment in securities, at value
(identified cost $22,005,318
and $10,718,752 respectively)
(Notes 1 and 2A) $26,161,868 $11,186,268
Cash (including foreign currencies)
273,032 -
Receivables:
Interest and dividends 79,794 260,480
Prepaid expenses 7,371 3,637
Deferred organization expenses
(Note 2G) 18,849 18,849
Total assets 26,540,914 11,469,234
LIABILITIES
Accrued expenses 67,213 30,578
Total liabilities 67,213 30,578
NET ASSETS (Note 4) $26,473,701 $11,438,656
Shares outstanding 2,428,187 1,202,329
Net asset value, offering and
redemption price per share $10.90 $9.51
At April 30, 1997, the components of
net assets were as follows:
Paid-in capital $21,491,396 $10,719,125
Undistributed net investment income
(deficit) (54,684) 207,702
Undistributed realized gains on
investments and foreign
currency transactions 884,134 51,961
Unrealized appreciation of investments
and translation of foreign currency
denominated assets and liabilities 4,152,855 459,868
$26,473,701 $11,438,656
Statement of Operations
For the six months ended
April 30, 1997 (Unaudited) S.I.S. Mercator Fund, Inc.
Global Equity Global Income
Portfolio Portfolio
INVESTMENT INCOME (Loss)
Income
Interest $110,675 $403,388
Dividends (net of foreign taxes
withheld of $8,389 and $748
respectively 83,734 20,801
Total income 194,409 424,189
EXPENSES
Investment management fees (Note 5) 119,868 54,079
Distribution expenses (Note 6) 2,491 361
Shareholder servicing fees (Note 6) 33,297 15,022
Administration (Note 5), accounting
and transfer agent 46,595 22,948
Professional fees 10,637 5,283
Registration and filing fees 5,985 2,822
Custody fees 14,041 1,321
Amortization of organization expenses 6,024 6,024
Directors' fees and expenses 2,870 1,416
Other operating expenses 7,285 3,473
Total expenses 249,093 112,749
Net investment income (loss) (54,684) 311,440
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
AND FOREIGN CURRENCY
Net realized gain from investments 897,307 74,940
Net realized gain <loss> from
foreign currency transactions
(13,173) (22,979)
Net change in unrealized appreciation
of investments 479,917 (559,733)
Net change in unrealized
appreciation/depreciation of
foreign currency denominated
assets and liabilities (4,343) (9,611)
Net gain (loss) on investments and
foreign currency denominated
asset and liabilities 1,359,708 (517,383)
Net increase (decrease) in net
assets resulting from operations $1,305,024 $(205,943)
Statement of Changes in Net Assets
Global Equity Portfolio
S.I.S. Mercator Fund, Inc.
For the Six Months For the Period From
Ended April 30, 1997 November 8, 1995 to
(Unaudited) October 31, 1996
OPERATIONS
Net investment income (loss) $(54,684) $108,299
Net realized gain on
investments and foreign
currency transactions 884,134 2,099,673
Net change in unrealized
appreciation of investments
and foreign currency denominated
assets and liabilities 475,574 97,013
Net increase in net assets
resulting from operations 1,305,024 2,304,985
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment
income ($0.04 and $0.07
per share, respectively) (103,024) (164,442)
Distributions from net realized
gains ($0.42) per share (1,000,091) -
CAPITAL SHARE TRANSACTION
Net increase in net assets from
capital share transactions (a) 134,475 23,896,774
Net increase in net assets 336,384 26,037,317
Net assets at the beginning of
the period 26,137,317 100,000
Net assets at the end of
the period (including
undistributed net
investment income (deficit) of
$(54,684) and $103,025,
respectively) $26,473,701 $26,137,317
(a) A summary of capital share transactions is as follows:
For the Six Months For the Period from
Ended April 30, 1997 November 8, 1995
(Unaudited) to October 31, 1996
Shares Value Shares Value
Shares sold 30,635 $330,060 241,065 $2,541,747
Shares issued in tax-free
reorganization (Note 1) - - 2,555,558 25,555,585
Shares issued in reinvestment
of distributions
to shareholders 101,018 1,103,115 16,023 164,442
131,653 1,433,175 2,812,646 28,261,774
Shares redeemed (119,047) (1,298,700) (407,065) (4,365,000)
Net increase 12,606 $134,475 2,405,581 $23,896,774
Statement of Changes in Net Assets
Global Income Portfolio
S.I.S. Mercator Fund, Inc.
For the Six Months For the Period From
Ended April 30, 1997 November 8, 1995 to
(Unaudited) to October 31, 1996
OPERATIONS
Net investment income (loss) $311,440 $609,044
Net realized gain on investments
and foreign currency transactions 51,961 355,025
Net change in unrealized appreciation
of investments and foreign currency
denominated assets and liabilities (569,344) (9,170)
Net increase (decrease) in net assets
resulting from operations (205,943) 954,899
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment
income ($0.50 and $0.28 per share,
respectively) (617,610) (356,834)
Distributions from net realized gains
($0.31) per share (375,671) -
CAPITAL SHARE TRANSACTION
Net increase (decrease) in net assets
from capital share transactions (a) (231,719) 12,221,534
Net increase (decrease) in net assets (1,430,943) 12,819,599
Net assets at the beginning of the period 12,869,599 50,000
Net assets at the end of the period
(including undistributed net
investment income of $207,702 and
$513,872, respectively) $11,438,656 $12,869,599
(a) A summary of capital share transactions is as follows:
For the Six Months For the Period from
Ended April 30, 1997 November 8, 1995
(Unaudited) to October 31, 1996
Shares Value Shares Value
Shares sold - - 30,672 $300,000
Shares issued in tax-free
reorganization (Note 1) - - 1,298,970 12,989,700
Shares issued in reinvestment
of distributions
to shareholders 100,499 993,281 35,740 356,834
100,499 993,281 1,365,382 13,646,534
Shares redeemed (126,140) (1,225,000) (142,412) (1,425,000)
Net increase (decrease) (25,641) $(231,719) 1,222,970 $12,221,534
commencement of operations
Financial Highlights
For a share outstanding throughout each period
Global Equity Portfolio S.I.S. Mercator Fund, Inc.
For the Six Months For the Period from
Ended April 30, 1997 November 8, 1995+
(Unaudited) to October 31, 1996
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning
of period $10.82 $10.00
Net income (loss) from investment
operations
Net investment income (loss) (0.03) 0.05
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions 0.57 0.84
Total from investment operations 0.54 0.89
Less distributions
Distributions from net
investment income (0.04) (0.07)
Distribution net realized gains (0.42) -
Total distributions (0.46) (0.07)
Net asset value, end of period 10.90 $10.82
TOTAL RETURN * 5.02% 8.89%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands) $26,474 $26,137
Ratio to average net assets
Expenses ** 1.87% 1.82%
Net investment income (loss)** (0.41)% 0.40%
Portfolio turnover rate 9% 42%
Average commission rate paid $.0674 $.0317
Commencement of operations
* Total return has not been annualized
**Annualized
Financial Highlights
For a share outstanding throughout each period
Global Income Portfolio S.I.S. Mercator Fund, Inc.
For the Six Months For the Period From
Ended April 30, 1997 November 8, 1995 to
(Unaudited) October 31, 1996
OPERATIONS
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning
of period $10.48 $10.00
Net income (loss) from
investment operations
Net investment income 0.24 0.50
Net realized and unrealized
gain (loss) on investments
and foreign currency transactions (0.40) 0.26
Total from investment operations (0.16) 0.76
Less distributions
Distributions from net
investment income (0.50) (0.28)
Distributions from net
realized gains (0.31) -
Total distributions (0.81) (0.28)
Net asset value, end of period $9.51 $10.48
TOTAL RETURN * (1.74)% 7.79%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands) $11,439 $12,870
Ratio to average net assets
Expenses ** 1.88% 1.84%
Net investment income (loss)** 5.18% 4.88%
Portfolio turnover rate 13% 29%
Average commission rate paid n/a n/a
Commencement of operations
* Total return has not been annualized
**Annualized
NOTES TO FINANCIAL STATEMENTS
April 30, 1997 (Unaudited)
S.I.S. Mercator Fund, Inc.
(1)Organization
S.I.S. Mercator Fund, Inc. (formerly Navigator Fund, Inc.) (the
"Fund"), is registered under the Investment Company Act of
1940, as amended (the "1940
Act"), as an open-end management investment
company and is authorized to issue shares in separate series.
The Fund currently offers shares in two
diversified series, the Global Equity Portfolio and the Global
Income Portfolio (the "Portfolios").
The Fund was incorporated on July 6, 1995, and between that
date and November 8, 1995 the Fund had no
operations other than those relating to organizational matters
and the registration of its shares under
applicable securities laws. On November 8, 1995 the Fund
sold 10,000 shares of the Global Equity
Portfolio for $100,000 and 5,000 shares of the Global Income
Portfolio for $50,000 to an Officer and
Director of the Fund and principal shareholder of East Coast
Consultants, Inc. ("East Coast"), the Fund's
principal underwriter and of Strategic Investment Services,
Inc. ("Strategic"), the Fund's investment advisor.
On November 10, 1995, 2,555,558 shares of the Global Equity
Portfolio, having a value of $25,555,585,
were issued to a partnership in an exchange which qualified as
a tax -free reorganization under the Internal Revenue Code.
The net assets of the partnership, consisting principally of marketable
securities, were $25,555,585, including unrealized appreciation of
investments and translation of assets and liabilities denominated in
foreign currencies of $3,580,267 and undistributed net investment
income of $145,866.
On November 10, 1995, 1,298,970 shares of the Global Income
Portfolio, having a value of $12,989,700,
were issued to a foundation in an exchange which qualified as
a tax-free reorganization under the Internal
Revenue Code. The net assets of the foundation, consisting
principally of marketable securities, were
$12,989,700, including unrealized appreciation of investments
and translation of assets and liabilities
denominated in foreign currencies of $1,038,381 and
undistributed net investment income of $276,228.
(2) Significant Accounting Policies
The Global Equity Portfolio's investment objective is to
achieve a high rate of return, with emphasis on
capital appreciation, by investing principally in equity
securities of companies located anywhere in the
world, but predominately in the developed countries. The
Global Income Portfolio's investment objective
is to achieve a relatively stable rate of total return with
emphasis on yield, by investing principally in fixed
income securities and, to a lesser extent, in equity securities of
high quality companies located
predominately in the developed countries with, at most, very
limited exposure to less developed countries.
The price of each Portfolio's shares will fluctuate daily and
there can be no assurance that the Portfolios
will be successful in achieving their stated investment
objectives.
The following is a summary of the significant accounting
policies followed by the Portfolios in the
preparation of their financial statements. These policies are
in accordance with generally accepted accounting principles.
A. Security Valuation. The securities held by the
Portfolios are valued as of the close of the New
York Stock Exchange (the "NYSE"). Listed securities are
valued at the last quoted sales price on the
exchange were the security is principally traded. Securities
listed on foreign exchanges are valued the
latest quoted market price available prior to the close of the
NYSE. Debt securities may be valued on the basis of prices
provided by a pricing service using methods
approved by the Fund's Board of Directors.
Other assets and securities for which no quotations are readily
available are valued in good faith by, or
under the direction of, the Fund's Board of Directors.
B. Currency Translation. The market values of all assets
and liabilities denominated in foreign
currencies are recorded in the financial statements after
translation to the U.S. dollar based upon the bid
price of such currencies against the U.S. dollar last quoted by a
major bank or broker. The cost basis of
such assets and liabilities is determined based upon historical
exchange rates. Income and expenses are
translated at average exchange rates in effect as accrued or
incurred.
The Portfolios do not isolate that portion of the results of
operations resulting from changes in foreign
exchange rates on investments from the fluctuations arising
from changes in market prices of securities
held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise
from sales and maturities of short-term
securities, sales of foreign currencies, currency gains or losses
realized between the trade and settlement
dates on securities transactions, the difference between the
amounts of dividends, interest, and foreign
withholding taxes recorded on the Portfolios' books, and the
U.S. dollar equivalent of the amounts
actually received or paid. Net unrealized foreign exchange
gains and losses arise from changes in the value
of assets and liabilities other than investments in securities at
fiscal year end, resulting from changes in the
exchange rate.
C. Forward Currency Contracts. The Portfolios may
enter into forward purchases or sales of foreign
currencies to hedge certain foreign currency denominated
assets and liabilities against declines in market
value relative to the U.S. dollar. Forward currency contracts
are marked-to-market daily and the change in
market value is recorded by the Portfolios as an unrealized
gain or loss. When the forward currency
contract is closed, the Portfolios record a realized gain or loss
equal to the difference between the value of
the forward currency contract at the time it was opened and the
value at the time it was closed.
Investments in forward currency contracts may expose the
Portfolios to risks resulting from unanticipated movements in
foreign currency exchange rates or failure of the counterparty
to the agreement to perform in accordance with the terms of the
contract.
D. Federal Income Taxes. The Portfolios intend to
comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute
all of their taxable income to their shareholders. Therefore, no
federal income tax provision is required.
E. Security Transactions, Interest and Dividends. As is
common in the industry, security transactions are recorded on
the trade date. Interest income is accrued as earned. Discounts
and premiums are amortized in accordance with Federal
income tax requirements. Dividends are recorded on the ex-
dividend date.
F. Distributions to Shareholders. Distributions to
shareholders are recorded on the ex-dividend date. The
character of distributions paid to shareholders is determined by
reference to income as determined for income tax purposes,
after giving effect to temporary differences between the
financial reporting and tax basis of assets and liabilities, rather
than income as determined for financial reporting purposes.
G. Deferred Organization Expenses. All of the expenses
incurred by the Fund in connection with the organization and
the registration of the Portfolios' shares were borne equally by
each Portfolio and are being amortized to expense on a straight-
line basis over a period of five years.
H. Use of Estimates. In preparing financial statements in
accordance with generally accepted accounting principles,
management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the
financial statements, and revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
(3) Investments
For six months ended April 30, 1997 the cost of securities
purchased and the proceeds from securities sold, excluding
short-term notes, was $3,396,333 and $2,154370, respectively,
for the Global Equity Portfolio, and $779,704 and $1,299,882,
respectively, for the Global Income Portfolio.
At April 30, 1997 net unrealized appreciation of investment
securities consisted of gross unrealized appreciation and gross
unrealized depreciation of $5,530,591 and $(1,374,041),
respectively, for the Global Equity Portfolio and $557,612 and
$(90,096) respectively, for the Global Income Portfolio.
(4) Capital Stock
At April 30, 1997 the authorized capital of the Fund consisted
of one billion shares of $.01 par value common stock with 100
million shares designated and classified the Global Equity
Portfolio and 100 million shares designated and classified the
Global Income Portfolio.
(5) Investment Management Fee and Administration Fee
Investment Advisory Agreement. Strategic provides investment
management services to each of the Portfolios under an
Investment Advisory Agreement. Strategic provides the
Portfolios with continuous invest-
ment programs, a trading department, and selects brokers and
dealers to effect securities transactions. As compensation for its
services Strategic is paid a monthly fee which is equal to the
annual rate of 0.90% of each Portfolio's average daily net
assets.
Administration Agreement. Strategic also serves as the
Administrator of the Fund under an Administration Agreement.
The services include the administration of the Fund's business
affairs, supervision of services provided by other organizations
providing services to the Fund, including the custodian,
dividend disbursing agent, legal counsel and independent
accountants, preparation of certain Fund records and
documents, record keeping and accounting services. As
compensation for these services Strategic is paid a monthly fee
which is equal to the annual rate of 0.25% of each Portfolio's
average daily net assets.
(6) Distribution Plans
Distribution Plan. The Portfolios have adopted Distribution
Plans pursuant to rule 12b-1 under the '40 Act, whereby each
Portfolio may make monthly payments at the annual rate of
0.25% of each Portfolio's average net assets to East Coast for
providing certain distribution services. These services can
include: promotion of the sale of Portfolio shares, preparation
of advertising and promotional materials, payment of
compensation to persons who have been instrumental in the
sale of Portfolio shares, and for other services and materials,
including the cost of printing Fund prospectuses, reports and
advertising material provided to investors, and to defray
overhead expenses of East Coast incurred in connection with
the promotion and sale of Fund shares.
Shareholder Services Plan. The Portfolios have also adopted
Shareholder Services Plans (the "Plans") which are designed to
promote the retention of shareholder accounts. Under these
Plans, the Portfolios are authorized to pay East Coast a monthly
fee which, on an annual basis, may not exceed 0.25% of the
average net assets of each Portfolio. Payments under the Plans
would be used, among other things, to compensate persons
and/or organizations that provide services to shareholders that
are designed to encourage them to maintain their investments in
the Portfolios.
(7) Other Transactions with Affiliates
Certain officers and directors of the Fund are also officers
and/or directors of Strategic and East Coast.
SUB-ITEM 77K: Changes in registrant's certifying accountant.
On June 23, 1997, Tait, Weller & Baker was
replaced as the Registrant's independent certified
public accountants. The decision to replace Tait,
Well & Baker was based upon the separation of
certain of the Firm's partners and professional
employees who had been the principal; providers of
audit, accounting and tax services to the Registrant
and who have formed a new independent certified
public accounting firm. The Registrant's Board of
Directors have approved the change in auditors.
Tait, Weller & Baker had served as the Registrant's
independent certified public accountants for the
period November 8, 1995 (commencement of
operations) to October 31, 1996. Tait, Weller &
Baker's report of the financial statements of the
Registrant for that period did not contain an adverse
opinion or disclaimer of opinion or was not
qualified or modified as to uncertainty, audit scope
or accounting principles. There were no
disagreements with Tail, Weller & Baker on any
matter of accounting principals or practices,
financial statement disclosure, or auditing scope of
procedure during the period from November 8,
1995 to October 31, 1996 and for the interim period
from November 1, 1996 through June 23, 1997.
On June 23, 1997, the Registrant's Board of
Directors also engaged the firm of Briggs, Bunting
& Dougherty, LLP to serve as its independent
certified public accountants. The Registrant
represents that it had not consulted with Briggs,
Bunting & Dougherty, LLP at any time prior to
their engagement with respect to the application of
accounting principals to a specified transaction,
either completed or proposed; or the type of audit
opinion that might be rendered on the Registrant's
financial statements.
June 23, 1997
Securities and Exchange Commission
Washington, DC 20549
Re: S.I.S. Mercator Fund, Inc.
File No. 811-9078
Dear Sir or Madam:
We have read Item 77-K of the Form N-SAR of
S.I.S. Mercator Fund, Inc. for the semi-annual
period ended April 30, 1997, and agree with the
statements contained therein.
Very truly yours,
TAIT, WELLER & BAKER
